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Roni Giladi, CFOYaffa Cohen-Ifrah, CMO and Head of Corporate Communications
Sapiens Investor Presentation
Q3 2019 Results, November 2019
Safe Harbor Statement
Certain statements made in this presentation may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as "will," "expects," "believes" and similar expressions are used to identify these forward-looking statements (although not all forward-looking statements include such words). These forward-looking statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement.
These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties, as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 3 of Part III of our Annual Report on Form 20-F for the year ended December 31, 2018 and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.
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480Insurance Carriers
Global Presence47% North America
44.3% Europe2
8.4% RoW3
LeadingPositionAcross Our Key
Businesses
3,000Employees
16.5%2013-2018 Revenue
CAGR
$290M2018 Revenue
P&C and L&A
Serving Both
InsuranceVerticals
12Acquisitions in
9 years
1. Non-GAAP figures 2. Includes Israel.3. Includes APAC and South Africa.
Sapiens at a GlanceGlobal Provider of Insurance Software Solutions
33
• About 11,000 insurance carriers globally
• Most carriers are still with legacy systems
• Opportunity for transformation in the insurance industry
• Expected to grow at 3.4% CAGR through 2022
• Expected to grow as insurance carriers replace their legacy core systems in order to address operational challenges and regulatory requirements
Source: Gartner Forecast: Enterprise IT Spending for the Insurance Market, Worldwide, 2016-2022, 2Q19 Update; Organisation for Economic Co-Operation and Development, World Insurance in 2018_Sigma – Swiss Re Sapiens’ estimates.
$5.2 Trillion GWP Globally
$221bnGlobal Insurance IT Spending
~4% of GWP Invested in IT
$40bnTAM
Insurance Software Solutions
Large and Growing TAM
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Key Industry Trends
Technology is the differentiation as insurance companies transform for the future
• Regulation
• Increased competition
• Millennial customers and new distribution channels
• New insurance products
• 20+ year old technology
• Inflexible systems do not support change
• Increased maintenance cost
• Prolonged time to market
• Growth challenges
• Difficulty entering new markets
• Poor consumer experience
• Shrinking profits
Market
Gap
Business challenges…
Implications for insurance companies
…Not supported by currentTechnology
55
Sapiens Today
Key Benefits of our Winning Model
✓ Single point of contact for the customer
✓ Lower client risk
✓ Successful implementation
✓ Opportunity to enhance product functionality
✓ High LTV – cross-sell and up-sell opportunities
✓ High stickiness – long-term customer relationships with repeat revenues
✓ Collaboration – innovation and R&D efforts
Benefits to Customers: Benefits to Sapiens:
Wide Range of Product Offerings
Pre- & Post-Production Services
Our Business ModelComprehensive Product and System Integration for P&C and L&A Globally
“One stop shop”77
Our Offerings – Insurance PlatformsMeeting Insurance Carriers’ Needs – Fully Integrated Platform, or Modular Components with Multiple Deployment Options
Cloud
Core Platform
Beyond Core
Deployment Options
Cloud
L&A
Hosted On-Premise
Digital Ecosystem
P&C
Data
88
Global Customer BaseOver 480 Customers across 25+ Countries
99
108%
56%
14%
2%
Development, delivery and support center
USA UK PolandIndiaIsrael
• Opened office in India to drive innovation and support new and existing projects across product portfolio
• Provides scale with efficient cost structure
• 1,000 employees as of today; potential to expand to 1,600
• In addition, significantly expanded US footprint driven by recent acquisitions
• 5 major development, delivery and support centers
Number of Employees, CAGR (%)
Growing Global Footprint
10
10
Sapiens Strategy
Strategy Overview
1. Geographic Expansion: Further expand in North America, Penetrate Additional European Markets
3. Return to Growth in L&A
4. Ecosystem: Partnerships withInsureTech partners
5. Innovate: Continue to Innovate in Our Product Offerings
2. Growing in P&C: Continue Growing in P&C Across Geographies
Grow withExisting Customers
Our Growth Engines
12
12
480Existing Customers
Win New Customers
Grow With Existing
CustomersNew Customers
25–30 New Logos Every
Year
ComplementaryProducts and Services
Initiative Started Q4/18
Enhancing Our Sales Model to Drive Existing Client Business
13
13
2019 &
Onward
Geographic Expansion
INSSECO
2010 2011 2014 2016 20182015 2017
Core SystemsOff-shore
CapabilitiesU.S. Expansion
Successful Acquisitions Track Record2010-2019
14
14
Financial Overview
Annual Revenue Growth
135.4157.5
179.3
216.2
272.0290.3
324.0
2013 2014 2015 2016 2017 2018 2019 Guidance
1 2019 guidance per Sapiens press release dated February 26, 2019.
+25.8%
+20.6%
+6.7%
216.2
179.3
+13.9%
+16.3%
11.3%-11.9%
(Non-GAAP, USD in Millions)
16
16
Revenue Growth
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019
73.3
-0.8%1.0%
73.4
1.4%0.3%
76.7
8.0%4.7%
79.5
9.6%3.6%
82.612.8%3.9%
YOYQOQ
(Non-GAAP, USD in Millions)
17
17
49.6
91.3
16.6
61
92
26
74.5
107.2
34.6
110.0
120.9
38.7
136.5128.5
24.8
NA Europe* ROW
2014 2015 2016 2017 2018
Annual Revenue by Geography
* Europe includes UK, Nordics, Israel and rest of Europe.
(Non-GAAP, USD Millions)
18
18
Attractive Revenue Model with Repeat Revenue ComponentNon-GAAP Revenues (USD millions)
Year 3 Year 4 Year 5 Years 6-10
Ongoing Post-ProductionPre-Production
Year 1 Year 2
Go
-Liv
e
Contractual High
Revenue ($mm)
Stage
Stickiness
Expected upside from account managers initiative – 100% focus on customers and the sale of the complete, expanded Sapiens products offering
19
19
High Customer Stickiness Creates Significant VisibilityNon-GAAP Revenues (USD millions)
Rev
enu
e
≈10–15%New Customers
≈85–90% Existing Customers
Year 1
Year 2
Year 3
Year 4
Year 5
20
20
Operating Income Growth & Margin Expansion
8.99.6
10.310.8
11.712.6
13.5
12.5%13.2%
14.0%14.8% 15.3% 15.8%
16.4%
-1.8%
2.5%
6.8%
11.0%
15.3%
19.5%
23.8%
28.0%
0.
3.5
7.
10.5
14.
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019
• Scaling revenue over efficient cost structure.
• Off-shore operation has a positive contribution on gross margin
➢ Expected to drive further margin improvement
• Short term operating margin target: 17%
(Non-GAAP, USD in Millions)
Op
erat
ing
Inco
me
Op
erat
ing
Mar
gin
21
21
Adjusted Free Cash FlowNon-GAAP Revenues (USD millions)
1. Included in cash-flow from operating activities.
(U.S. Dollars in Thousands)
Dividend policy - distribution of up to 40% of its annualnet profit (non-GAAP) annually.Payment of $11 in September 2019 for the year 2018.
Cash by end of Q3 - $73M Debentures by end of Q3 – $70M, spread over 7 years
Q3 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018
Cash-flow from Operating Activities 18,671 15,507 10,550 11,509 6,370
Capitalized Software Development Costs (1,541) (1,570) (1,392) (1,382) (1,308)
Other Capital Expenditures (973) (1,079) (641) (204) (831)
New campus in India (6,325) - - - -
Free Cash Flow 9,832 12,858 8,517 9,923 4,231New campus in India 6,325 - - - -Acquisition-related Costs1 100 1,692 1,608 790 –Adjusted Free Cash-flow 16,257 14,550 10,125 10,713 4,231
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22
Leading global provider of insurance software solutions across P&C and L&A
Targeting a massive market – TAM ~$40B
Long-term, well-established relationships with 480+ customers globally
Recurring revenue business model
Double digit organic growth accelerated with M&A
Margin expansion driven by economies of scale and off-shore operation
We enable the transformation of insurance carriers globally by providing integrated core and complementary software solutions, technology-led services and a full digital suite
Investment Highlights
23
23
Contact: Yaffa Cohen-Ifrah, CMO & Head of Corporate Communications
Mobile: +1-201-250-9414 | Phone: +972-3-7902032Email: [email protected] | Website: www.sapiens.com
GAAP vs. Non-GAAP ReconciliationNon-GAAP Revenues (USD millions)
25
25
(USD in Thousands)
GAAP vs. Non-GAAP ReconciliationNon-GAAP Revenues (USD millions)
26
26
(USD in Thousands)
Q3 Non-GAAP ResultsNon-GAAP Revenues (USD millions) Third Quarter
20182019(USD in Millions, Except per Share Amount)
73.282.6Revenue
30.936.7Gross Profit
42.2 %44.4 %
10.313.5Operational Profit
14.0%16.4%
7.510.4Net Income
10.3%12.6%
11.214.5Adjusted EBITDA1
0.150.21Diluted EPS
50,14350,742Diluted Weighted Average Number of Shares
Outstanding Shares: 50,052)as of September 30, 2019(
1. The Company defines Adjusted EBITDA as net profit, adjusted for stock-based compensation expense, depreciation and amortization, capitalized internal-use software development costs, amortization of internal-use software development costs, interest expense, provision for income taxes and other income (expenses).
27
27
Q4 and Annual – Non-GAAP ResultsNon-GAAP Revenues (USD millions)
1. The Company defines Adjusted EBITDA as net profit, adjusted for stock-based compensation expense, depreciation and amortization, capitalized internal-use software development costs, amortization of internal-use software development costs, interest expense, provision for income taxes and other income (expenses).
AnnualQ4
2017201820172018(USD in Millions, Except per Share Amount)
272.0290.372.573.4Revenue
106.7122.929.531.3Gross Profit
39.2%42.4%40.7%42.7 %
23.139.69.010.8Operational Profit
8.5%13.6%12.5%14.7%
15.528.16.17.8Net Income
5.7%9.7%8.5%10.7%
26.943.310.111.8Adjusted EBITDA1
0.320.560.120.16Diluted EPS
49,92650,10650,03250,210Diluted Weighted Average Number of Shares
Outstanding Shares: 49,982)as of December 31, 2018(
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28
Consolidated Balance SheetsNon-GAAP Revenues (USD millions)(USD in Thousands)
29
29
Our Offerings – Insurance PlatformsMeeting Insurance Carriers’ Needs – Fully Integrated Platform, or Modular Components with Multiple Deployment Options
Cloud
Core Platform
Beyond Core
Deployment Options
Cloud
L&A
Hosted On-Premise
Digital Ecosystem
P&C
Data
30
30
Leading Property & Casualty Offering
Cloud
L&A
Hosted On-Premise
Digital Ecosystem
P&C
DataOur Positioning
• Fit-to-Market Solutions
• Europe – leading position in the UK & Nordics
▪ Potential to expand
• North America – strong momentum following the acquisitions of StoneRiver and Adaptik
Key Achievements
✓ Continues Growth
✓ larger deal sizes (platform and services)
✓ Shifting to cloud
CoreSuite
Policy
Billing
Claims
Reinsurance
Workers’ Compensation
31
31
Leading Life & Annuities Offering
Cloud
L&A
Hosted On-Premise
Digital Ecosystem
P&C
Data
CoreSuite
Illustration
Underwriting
E-App
Run-off
Our Positioning
• End-to-end proposition
▪ Covering both strategic growth business and run-off portfolio management
▪ Comprehensive proposition: both full core suite and business components
Key Achievements
✓ Back to growth
✓ Digital-ready offering
✓ Shifting to cloud
32
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